USD/JPY: Hanging at a High
If you are following the USD/JPY, you will have seen the steep climb the currency pair has made in the last two weeks. It has been almost thirteen years (2002) since the USD/JPY has seen market rates this high. The strength of the greenback has a lot to do with current U.S. economic policy and favorable economic news which is supporting its increasing trend upward, such as the favorable Manufacturing PMI report that came out yesterday at 52.8 versus 52.0 expected.
In regards to U.S. economic policy, on May 22nd, the U.S. Federal Reserve gave the appearance of a stronger economic position. Janet Yellen indicated that sometime later this year, the U.S. would have a rate hike due to the growing economy. Alternatively in Japan, the country is continuing a policy of quantitative easing to buy up bonds of the entire bond market, a process they started in 2012, dropping the value of the yen versus the Dollar by more than 30% since then.
Tuesday saw the USD/JPY hit its resistance before having a downward hiccup. It returned to a rising trend today, but is there inflation on the horizon for the greenback and a possible downward trend for the USD/JPY in its future as the OECD slashed it growth rate to 2% for the U.S. economy?
In USD/JPY market news this week:
• Wednesday has important news announcements for both the U.S. and Japan. The U.S. has the ADP Employment Change, Trade Balance numbers, and Non-Manufacturing Composite which are all expected to show strong results. The amount of Japan’s buying of Foreign bonds and stocks will be announced, previous numbers stood at ¥911.8B and ¥561.2B respectively. The net data will show the difference of capital inflow and outflow. A positive difference indicates net sales of foreign securities by residents (capital inflow), and a negative difference indicates net purchases of foreign securities by residents (capital outflow). As bond buying is a big factor in Japan’s economic policy, watch these numbers closely.
• At Thursday 00:00 GMT, Bank of Japan (BoJ) Governor Haruhiko Kuroka will hold a press conference about monetary policies in Tokyo. This is an important statement to follow.
• Friday – At 05:00 GMT, Japan has its Leading Economic Index and Coincident Index, which tracks the state of the Japanese economy. For the U.S., the markets will be watching the monthly Non-Farm Payroll and Unemployment Rate.
Long (buy) Call Trade
If you expect as an option trader the USD/JPY to take an upward trend this week, you may buy a USD/JPY Call option because a Call increases in value as USD/JPY price rises. Your option strike choice depends on your outlook; if you are bullish and expect a large upward move you may want to choose a strike further away from the current underlying USD/JPY price. See lesson on Determining a Buy Call Option’s Moneyness if you would like to understand strikes.
Below is an example in the optionsReasy web-platform. It is a USD/JPY Call option with 0% strike (matching the current underlying price), to expire in 2 days and for an amount of 50,000 USDs. The risk is limited and profit is unlimited in this position.
The below Scenario chart and table show the Call option trades profit or loss, at expiry, over a range of USD/JPY rates.
Long (buy) Put
If you expect as an option trader the USD/JPY to take a downward trend this week, you may buy a USD/JPY Put option because a Put increases in value as USD/JPY price falls.
Below is an example in the options Reasy web-platform. It is a USD/JPY Put option with 0% strike (matching the current underlying price), to expire in 2 days and for an amount of 50,000 USDs. The risk is limited in this position.
The below Scenario chart and table show the Put option trades profit or loss, at expiry, over a range of USD/JPY rates.